THE DCIT, CENTRAL CIRCLE-1,, BARODA vs. MUKESH D. MANGLANI, GODHRA

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ITSSA 96/AHD/2018Status: DisposedITAT Ahmedabad25 July 2024AY 2010-115 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s deletion of the addition. The Tribunal noted that for an addition under Section 68, entries must appear in the assessee's books of account. The AO himself admitted that the entries reflected in the loose papers were not appearing in the assessee's books of account. While the Revenue argued that cash flow should be treated as books of account, the Tribunal found that the assessee had provided details in the Paper Book, which were sent to the AO for verification. The AO did not file any remand report or provide further explanation. The Tribunal observed that the cash book did not reflect the material found during the search for the purpose of disclosure under Section 153A. However, the assessee's group's cash book of undisclosed income, submitted during assessment, was considered. The CIT(A) had taken into account that these entries were reflected as part of undisclosed income utilized for tax purposes for other group members. The assessee provided details of cash inflow and outflow related to financing third parties, which were reflected in the ledger account. Therefore, the CIT(A) rightly deleted the addition, and the Tribunal found no need to interfere. The Revenue's grounds were not sustainable on merit.

What were the facts?

This appeal by the Revenue concerns Assessment Year 2010-11. A search under Section 132 of the Income Tax Act, 1961, was conducted on the Dhanjimama Group, including the assessee, Shri Mukesh D. Manglani, on July 3, 2012. Proceedings under Section 153A were initiated. The Assessing Officer (AO) noted the assessee's business in trading sand, kapachi, footwear, and land dealings. Seized documents (Annexures A-87 & A-113) revealed details of cash credits and subsequent transactions. The AO observed that the assessee managed land dealings and financing under his father's guidance. The assessee disclosed additional income of Rs. 1,50,000/- during search proceedings. The AO added Rs. 10,74,03,044/- as unexplained cash credit under Section 68, finding the identity, genuineness, and creditworthiness of finances received and made to be unexplained, despite cash inflow and outflow being reflected in undisclosed books.

What were the issues?

1. Whether the Ld. CIT(A) erred in deleting the addition of Rs. 10,74,03,044/- made on account of unexplained cash credit, contrary to the facts and law? 2. Whether the Ld. CIT(A) failed to appreciate that the assessee did not produce confirmation letters from lenders and did not disclose the identity, genuineness, and creditworthiness of finances received and made? 3. Whether the Ld. CIT(A) failed to appreciate that although cash inflow and outflow were reflected in undisclosed books, the source and end application remained unexplained? Assessee's Contentions (Ld. AR): The Ld. AR argued that Section 69A should have been invoked instead of Section 68, as there were no regular books of account, and cash flow cannot be treated as books of account. The assessee prepared accounts based on seized papers, reflecting cash deposits and further financing as part of a money lending business. The AO admitted that cash inflow and outflow were reflected in undisclosed books. Revenue's Contentions (Ld. DR): The Ld. DR contended that the CIT(A) erred in deleting the addition. The assessee failed to provide confirmation letters and disclose the identity, genuineness, and creditworthiness of finances. The source and application of funds remained unidentified. The Ld. DR argued that cash flow should be treated as books of account, making Section 68 applicable, and relied on the AO's order.

Which sections of the Income-tax Act were involved?

Section 132,Section 153A,Section 143(2),Section 142(1),Section 68,Section 69A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH, AHMEDABAD

Before: Ms. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA

For Appellant: Shri Ketan Shah, AR
For Respondent: Shri Kamlesh Makwana, CIT-DR
Hearing: 29.05.2024Pronounced: 25.07.2024

PER SUCHITRA KAMBLE, JUDICIAL MEMBER:

This appeal is filed by the Revenue against order dated 19.01.2018 passed by the CIT(A), Ahmedabad for the Assessment Year 2010-11.

2.

The Revenue has raised the following ground of appeal :-

“(1) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of unexplained cash credit of Rs.10,74,03,044/- (2) On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that the assessee has failed to produce confirmation letters from the parties claimed to be financing the above loans and also failed to disclose the identity, genuineness and creditworthiness of finances received as well as finances made. (3) On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that the cash inflow and outflow was although reflected in the undisclosed books, but the source as well as the end application remains unexplained.

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(4) It is, therefore, prayed that the order of the Ld. CIT(A)-12, Ahmedabad may be set-aside and that of the A.O. may be restored to the above extent.” 3. A search action under Section 132 of the Income Tax Act, 1961 was carried out in the Dhanjimama Group of cases including the case of the assessee on 03.07.2012. Consequent to the search action, the proceedings under Section 153A of the Act were initiated. Accordingly, notice under Section 153A of the Act was issued on 04.09.2013 and in compliance thereto the assessee filed its return of income for Assessment Year 2011-12 on 18.03.2014 showing total income of Rs.9,46,850/- alongwith agricultural income of Rs.51,400/-. Thereafter, notices under Section 143(2) and 142(1) of the Act were issued and served to the assessee. In response to the notices issued, the AR attended the proceedings and filed the details of income. The Assessing Officer observed that the assessee is engaged in the business of trading in Sand, Kapachi etc., wholesale trading of footwear products and dealing in lands. The assessee is deriving income from salary, house property, business/profession & other sources. The gross receipts from business for the year under consideration is Rs.1,30,45,015/- During the course of assessment proceedings, the assessee had undertaken that any of the income found on the basis of seized material and pertains to not any particular firm/company/assessee, it may be added to his return of income since overall work of land dealings/financing etc. is managed and controlled by the assessee under the guidance of his father Shri Dhanraj G. Manglani. The assessee in its return of income offered additional income of Rs.1,50,000/- which is as per the disclosure of additional income made during the course of search proceedings. The Assessing Officer observed that there was seizure of Annexure A-87 & A-113 from the premises of the Dhanjimama Group wherein the details of cash credits and substantial amount and subsequent transactions of interest have been reflected. The Assessing Officer observed that the main person of Dhanjimama Group is the assessee and through assessee’s Representative the assessee disclosed/informed the undisclosed finances received by the assessee from various unidentified persons. Such payments were received for the purpose of finances for their own use as well as financing business. After taking cognisance of the assessee’s reply and the relevant seized material, the Assessing Officer held that the assessee has not disclosed the identity, genuineness and creditworthiness of the finances received as well as finances

IT(SS)A No.96/Ahd/2018 Assessment Year: 2010-11 Page 3 of 5

made. The cash inflow and outflow was although reflected in the undisclosed books, but the source as well as the end application remains unidentified. The story of finances received and finances made was not accepted by the Assessing Officer and the said unexplained cash credit were added to the assessee’s income under Section 68 of the Act amounting to Rs.10,74,03,044/-

4.

Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.

5.

The Ld. DR submitted that the CIT(A) erred in deleting the addition made on account of unexplained cash credit of Rs.10,74,03,044/-. The assessee failed to produce confirmation letters from the parties claimed to be financing the above loan and also failed to disclose identity, genuineness and credit worthiness of the finances received as well as finances made. Cash inflow and outflow was although reflected in the undisclosed books, but the source as well as the end application remains unidentified. Thus, the Ld. DR submitted that the CIT(A) was not right in deleting the addition as there was no regular books of account and cashflow should have been treated as books and, therefore, Section 68 is applicable in assessee’s case. The Ld. DR relied upon the Assessment Order and submitted that the Assessing Officer has rightly made the addition.

6.

The Ld. AR relied upon the order of the CIT(A) and submitted that there was no books of accounts and, therefore, Section 69A of the Act should have been invoked rather than Section 68 and in fact the cash flow cannot be treated as books of account. The Ld. AR further submitted that the assessee had prepared accounts in the light of seized papers in which he has also reflected these cash deposits (receipts) and in the ledger account provided, the assessee has not only reflected the cash receipt but also reflected further financing made to the third parties as a part of money lending business. The Assessing Officer in fact admitted that cash inflow and outflow was reflected in the undisclosed books.

7.

We have heard both the parties and perused all the relevant material available on record. It is pertinent note that the assessee and his father has given undertaking to the Department that any addition based on any loose papers found during search shall be done in the assessee’s case. The fact remains that for making addition under

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Section 68 of the Act, it is necessary that the entries should be appeared in the books of account of the assessee whereas in the present case, as admitted by the Assessing Officer, none of the entries reflected in the loose papers were appearing in the books of account of the assessee. Thus, invocation of Section 68 itself appears to be in dilemma but after going through the submissions of the ld. DR, it appears that the cash flow should be treated as books of account and, therefore, Section 68 of the Act will be applicable. But as on merit, when the entire Paper Book filed by the assessee was sent to the Assessing Officer during the appellate proceedings for verification and comments, the Assessing Officer has not filed any remand report or has not given any explanation. On the contrary, the assessee before the appellate proceedings has given the details furnished by way of Paper Book which clearly shows that the cash book do not reflect the material found during the search for the purpose of working of the disclosure to be made in the return under Section 153A of the Act. From the perusal of these documents, it appears that there is no ambiguity/deficiency so far as the records in the group’s cash book of undisclosed income worked out by the assessee which was submitted to the Assessing Officer during the assessment proceedings. It has been taken into consideration by the CIT(A) that all those entries were reflected as part of undisclosed income which was utilised for tax in case of one or other members of the group to which the assessee belongs. The assessee has given the details related to cash inflow and outflow relating to finances made to third parties and it was reflected in the ledger account as well. Thus, the CIT(A) has rightly deleted the addition. There is no need to interfere with the same. Hence, on merit, the Revenue’s grounds are not sustainable.

8.

In the result, appeal of the Revenue is partly allowed.

Order pronounced in the open Court on this 25th July, 2024.

Sd/- Sd/- (NARENDRA PRASAD SINHA) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 25th July, 2024 PBN/*

IT(SS)A No.96/Ahd/2018 Assessment Year: 2010-11 Page 5 of 5

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File

By order UE COPY

Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad

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